The central government grant allocation problem in the presence of misrepresentation and cheating |
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Authors: | Email author" target="_blank">Guy?GilbertEmail author Yvon?Rocaboy |
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Institution: | (1) University of Paris X Nanterre and Centre National de la Recherche Scientifique (THEMA), 200, Avenue de la République, 92000 Nanterre Cedex, France;(2) University of Rennes I and Centre National de la Recherche Scientifique (CREREG), 7, place Hoche, 35065 Rennes Cedex, France |
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Abstract: | This study deals with the central government grant allocation problem under conditions of asymmetric information. Using a simple model, we examine herein the optimal design of random audit and incentive mechanisms to encourage the grantee (the local government authority) to report truthfully on local parameters required in the granting process. The local government authority must choose between two possibilities: a menu of contracts that could be considered as a matching grant programme with random auditing vs. a lump-sum grant without any audit mechanism. We will show that addressing the optimal grant system problem is similar to comparing slopes on the graph of the indirect local government welfare function at two distinct points.Received: January 2003, Accepted: November 2003, JEL Classification:
H21, H23, H71, H77We would like to express our thanks to Howard Chernick and an anonymous referee for their extremely helpful comments. |
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Keywords: | Auditing procedures matching grant lump-sum grant public goods local government |
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